Protection racket

UK companies benefit from takeover threat

The threat of unemployment can concentrate top managers' minds. A potential acquisition can push executives into making hard but helpful decisions. That is as true in pharmaceuticals as in any other industry. Neither UK science nor British business in general is likely to benefit if the bosses of high-profile companies like AstraZeneca feel they can rely on public uproar to keep them in work, come what may.

The Wellcome Trust, a British health care research charity, is the latest influential body to seek reassurances that a Pfizer bid for the Anglo-Swedish drugmaker would not damage the nation's spending on research and development. That is a legitimate issue - acquirers do sometimes sacrifice long-term investments for the sake of pleasing impatient shareholders.

Still, takeovers are part of corporate evolution, as William Castell, Wellcome's chairman, knows well. He sold Amersham, a maker of high-tech medical equipment, to GE for $10 billion in 2003 - a deal that did not arouse much, if any, protest. GE Healthcare remains based in Amersham's eponymous headquarters town, no doubt because the intellectual capital there is outstanding.

AstraZeneca was until recently a poor performing company, struggling with weak productivity in R&D. New management - well aware that failure would cost them their jobs - revised the strategy. Investors were won over and the share price rose. Normally, that would have been a good defence against takeover, but the peculiar UK fiscal regime means that tax savings allow Pfizer to offer a substantial takeover premium. AstraZeneca investors can demand that they receive yet more.

Whatever happens to AstraZeneca, the passions aroused by Pfizer's approach could ultimately harm the UK economy. If potential foreign bidders feel that it's too much bother trying to buy a high-profile British company, the incumbent top management will have less to worry about. That is not good for owners or business.